Navigating the real estate market can be challenging, especially with so many industry-specific terms and metrics that can impact your buying or selling decisions. Understanding these key terms is essential whether you’re a first-time buyer, an investor, or a homeowner ready to sell. At Arbor we are experts in all things real estate. Here’s a breakdown of important real estate market terms we put together for you and what they mean for you.
Market Trends
Definition: Market trends reflect the general direction in which the real estate market is moving. These trends can vary based on factors like seasonality, economic conditions, and changes in buyer demand.
Why It Matters: Tracking market trends helps buyers and sellers understand whether they’re in a “buyer’s market” (where there are more homes than buyers, leading to lower prices) or a “seller’s market” (where there are fewer homes available, which can drive prices up). This insight can help you strategize your timing to buy or sell.
Inventory (or Housing Inventory)
Definition: Inventory refers to the number of homes currently available for sale in a particular market. It’s typically measured by the “months of supply,” which estimates how long it would take to sell all homes currently on the market at the current pace of sales.
Why It Matters: Inventory helps gauge the balance between supply and demand in the market. Low inventory usually points to a seller’s market, as high demand and low supply push prices up. High inventory often indicates a buyer’s market, where sellers may need to lower prices or negotiate more to sell their homes.
Appreciation
Definition: Appreciation refers to the increase in a property’s value over time. Real estate appreciates due to various factors like demand, location, inflation, and improvements made to the property or the surrounding area.
Why It Matters: Appreciation is crucial for buyers and investors, as it impacts the return on investment when selling a property in the future. Sellers can also benefit from appreciation when pricing their homes. Understanding local appreciation trends can help buyers and sellers make informed decisions about timing and investment potential.
Days on Market (DOM)
Definition: Days on Market (DOM) is the number of days a property has been listed for sale before it goes under contract.
Why It Matters: DOM serves as a gauge of market competitiveness. Homes with a low DOM are selling quickly, indicating high demand. If properties stay on the market longer than the area’s average DOM, it may signal overpricing or that the home is in less demand, prompting sellers to consider price adjustments or other marketing strategies.
Median Home Price
Definition: The median home price is the middle point of all homes sold in a given time period, where half of the homes sold for more and half sold for less.
Why It Matters: The median home price provides a snapshot of housing affordability in a specific market. While the average price can be skewed by very high or low sales, the median offers a more accurate reflection of the typical home price. Buyers can use this information to budget accordingly, while sellers can see where their property fits in the local market.
Mortgage Rates
Definition: Mortgage rates are the interest rates that lenders charge for home loans. These rates vary based on the borrower’s financial profile, the type of loan, and broader economic conditions.
Why It Matters: Mortgage rates significantly impact buying power. Lower rates mean buyers can afford higher-priced homes, while higher rates may restrict budget. Keeping an eye on rate trends helps both buyers and sellers anticipate market demand, as low rates can drive more people to buy, boosting market activity.
Comparable Sales (Comps)
Definition: Comparable sales, or “comps,” are similar properties in the same area that have recently sold. They’re used as benchmarks for pricing homes.
Why It Matters: Comps are essential in setting a realistic listing price. By comparing your home with recently sold similar properties, you gain insights into what buyers are willing to pay. Buyers can also use comps to make competitive offers and ensure they’re not overpaying for a property.
Equity
Definition: Equity is the difference between the market value of your home and the amount you owe on your mortgage. Essentially, it represents your ownership stake in the property.
Why It Matters: Building equity is a key benefit of homeownership, as it grows over time with mortgage payments and appreciation. Higher equity can offer flexibility for future financial decisions, like taking out a home equity loan or maximizing profit when selling.
Housing Affordability Index
Definition: This index measures whether a typical family earns enough income to qualify for a mortgage on a median-priced home. It’s affected by home prices, income levels, and mortgage rates.
Why It Matters: The affordability index helps gauge whether homes in a particular market are becoming more or less accessible. Buyers can use it to assess whether it’s a good time to enter the market, while sellers can anticipate buyer demand based on affordability levels.
Closing Costs
Definition: Closing costs are the fees and expenses (outside of the property price) that buyers and sellers pay to finalize a real estate transaction. These can include title insurance, appraisal fees, loan origination fees, and more.
Why It Matters: Understanding closing costs can help buyers budget beyond the down payment. For sellers, knowing these costs can help estimate net profits after the sale. Buyers and sellers can both prepare better and avoid surprises at the closing table by estimating these fees upfront.
Making the Market Work for You
Knowing these terms will help you navigate the real estate market with confidence and clarity, whether buying, selling, or investing. Familiarizing yourself with these basics will empower you to make well-informed decisions and partner effectively with your real estate agent. By understanding key metrics and market conditions, you can take charge of your real estate journey and make it a success.
